Sep 24, 2008

Business - In Conversation with Subramanian;Subhiksha

Batool Aliakbar Lehry

Like his no-frills discount retail chain, 41-year-old Ramaswami Subramanian, Managing Director of Subhiksha, is direct and means business. There is no small talk, pre-interview warm-up exercise before this meeting. He walks in, gives a firm handshake, warns of a 45-minute time limit and with his exacting memory rattles off Subhiksha-related statistics without batting an eyelid or taking a second check.So, what is the strength behind this retail business model which locks in nearly 6.5 lakh bills every day and that has saved almost Rs 250 crore for its customers last year? “Plain logic”, says Subramanian. In 1997, he chose to enter the retail market, choosing it over software as he would be an early entrant and have the first-mover advantage. From initial research, he discovered that the reason a customer would abandon his existing store and come to Subhiksha “was price. So, we decided to sell branded products at a lower price.”And, consumers prefer buying groceries from closer home, so “we decided to set up 1,500 sq ft shops across the city”, quite unlike his competition with outlets almost twice as big. Today, the chain boasts 1,381 stores, with 135 stores in Delhi where there are just 110 post offices. “There are more Subhiksha stores than there are post offices in Delhi. So, everyone can find one in their neighbourhood. For the mass market, we are everywhere,” he says.This does affect the choice available at the store and that’s why “we consciously say that you will not find everything in this store, you will find only the fastest moving products, the ones most in demand”. This calls for business intelligence tools and at a time “we want to have 1,250-1,400 stock-keeping units and hence when we add products, we chuck the ones that are out of demand too. It’s the survival of the fittest.”Reason for shoppingAnother facet that is surprising about Subhiksha is its ‘no-frills model’ thrives in this day and age where ‘experiential shopping’ is in vogue. Subramanian responds with his spear of logic — “What do you need experiential shopping for? Yes, if you are shopping for garments because you don’t buy them every day but once in six months; you want choice because you want something new every time and you spend nearly an hour at the shop, so you need an AC and a nice ambience.” But, in the case of grocery shopping, there is “no excitement. Touch-and-feel is an abuse word. You know exactly what you want and don’t want to spend more than 15 minutes at the shop,” he says.It is his strong sense of reasoning that kept him going through bad times as well. The big trouble, which knocked his door within a month of opening his first store in 1997 in Chennai, was a dharna orchestrated by neighbourhood chemists against selling medicines at a discount. “The matter exploded in a serious way in mid-1998 and finally court orders turned in our favour in November 1998.” Basically, “we were running our business hands on. If you are remote, you tend to worry about it. We knew what the problem was, how to attack it, and how to sort it out,” he says with perfect calm.Another difficult time, he recounts was about two years ago “when a lot of players were entering the market and there was a concerted effort to spread rumours and buy us out.” He was clearly not interested. “Why should we sell? If we think we can’t do better than what we do today or if we are not able to grow the business, we would sell.” Confident on both counts, he refused the offers. “But, there was some pressure created when competition was coming and wanted to pick our people two-three times our cost.” Logic worked again, as Subhiksha was a business “which was people independent and process driven.” Eventually, only two senior management executives left the retail chain that today employs 5,000 people on the rolls and 13,000 on a contract basis.Value for moneyAlso, what has clicked for Subramanian, apart from his strong reasoning, is his in-depth understanding of the ethos of the Indian consumer. And it is not just the name which was derived from the Sanskrit word Subhiksham (which means ‘Giver of all good things’) or the soft carnatic music which is the ambient music at the modest corporate office in Chennai. “It is knowing the nuances of the market, and the culture. India is the only market in the world which calls itself middle-class but has a maid and a cook,” he says.The stores do not focus on the rich, but on the great Indian middle-class, which has an instinctive bias towards what is value-for-money. His theme, aptly enunciated in its ad campaign, was “why pay more when you can get it for less” and that too, at a store just round the corner. Also, he says, “In India, self-shopping has a premium connotation which is very funny. Say, in the US, at a self-service bunk you pay less, at self-service section at Saravana Bhavan you pay less than what you pay at the sit-down section. So, self-service is actually lower-end.”Furious at the tendency to ape the West, he says, “The way we shop here is very different from what exists in the US.In the US, you need to be a one-stop shop because that will be the only store in the vicinity. Here, if you don’t find something at a shop, you’ll get it at the one next door.”Perhaps, it was this way of thinking that made him stay back in India, when nearly 90 per cent of the 1987 IIT-Madras batch, to which he belonged, went abroad. “I took a call that I didn’t want to go abroad and do something here,” he reminisces. Venturing into the unknownHe passed out of IIM-Ahmedabad with a gold-medal and the best job on campus with Citibank’s investment banking division.In those days, “Salaries were bad. My first was Rs 5,500 and that was the best salary that year.” That apart, “it was doing more and more of the same thing,” that made him quit that coveted job in three-four weeks.Was it a decision that came easy to him? “While the monetary risk was only Rs 5,500, the social risk of failure was far greater. Entrepreneurship was not an accepted way of life 20 years back. As a failed entrepreneur, would you have place in corporate India was a big question mark. I didn’t think about it much.”So, after a short stint at two-wheeler maker Enfield, Subramanian told S. Vishwanathan, its Chairman, that he wanted to be on his own. Vishwanathan lent him Rs 2.5 crore and he launched Viswapriya, a financial services company. When he started Subhiksha with a capital of Rs 5 crore in 1997, Viswapriya was a Rs 100-crore company. Currently, Viswapriya is an NBFC with interest in real estate as well, but Subramanian is hands-off that business.What he is hands-on is growing Subhiksha to 3,000 stores in two years and doubling its turnover to Rs 4,500 crore (Rs 2,305 crore currently), saving nearly Rs 500 crore for his customers. He also has aggressive plans to expand the most recent venture in mobile phone retailing to 700 stores by 2010.So, does the logic-driven retailer believe in lady luck, at all? “Luck is being at the right place at the right time. Yes, it has played a huge role — getting financial support at the right time, getting into retail just before property prices shot up, and entering mobile phone retail on a national scale, when the concept was still raw…” he says.Tough on ambitionFor Subramanian, who reads almost 10 newspapers every morning, “work itself is unwinding.” He followed the Indian Premier League, not really for the cricket, but because “we advertise during IPL and I wanted to check if it was working.”He reads widely on the Internet on supermarkets, consumer industry trends and financial markets, which he is still passionate about. He works six days a week for an uninterrupted 12 hours a day. When he walks on the road, he is busy “noticing the changes in the Indian consumer” and how he can respond to it.If it is not Subhiksha, it’s Sumukhi, his two-year-old daughter, who occupies his mindshare and just about 30 minutes of his time 15 days a month; rest of the days he is travelling.“On Sundays, we go out or visit a temple,” he says. “Family has been very supportive. We have been able to strike an equilibrium… none of us are stressed.”Logic not only governs his business strategy and his way of life, but also forms the backbone of his teachings to upcoming entrepreneurs. When he talks to students of IIM-A, he asks, “Are you ready to be an entrepreneur when you are out of campus?” He acknowledges that entrepreneurship is the ‘in thing’ today and seems “so heroic, and romantic. But is it the logical thing to do? I would say ‘No’. If you want to set up a retailing venture or financial services business dealing with people, real world experience will count and will have its weight.”His recommended list of reading includes Alfred P Sloan’s My Years with General Motors, where the author describes his systematic and of course the “logical style” in which he built the business.At the end of the day, what keeps this Geminian going is, “The vindication of the path I’ve taken. I like what I do and work with people I like. We are headstrong and steadfast in achieving our goal; we are tough and rational. There is no soft side to us…”Recently...Azim Premji picked up a 10 per cent stake in the Subhiksha for Rs 230 crore. Premji's investment company Zash Investment Pvt Ltd has acquired a part of ICICI Venture's 33 per cent stake in the discount retailer. "This is a strong endorsement of our business model and a message to the market about the success of our business," says Subramanian. "We did not look out for him, but he found us and this makes us very proud," he adds.With its promise of 'lowest cost' and 'close proximity' intact, Subhiksha has forayed into the consumer durables retail business at an investment of Rs 600 crore. The company plans to launch 150 stores by June 2009. "We will cut cost in the right way to manage margins," he says, assuring that this chain of stores "will be air-conditioned!"Subhiksha has bought a majority stake in Madras Stock Exchange-listed Blue Green Construction and Investment Company for Rs 3 crore. "The merger is under way and most probably we should enter the New Year with the status of a listed company," he says.The company also plans to raise $80-100 million by an investment from three foreign institutional investors (FIIs). The investment will come through the listed-arm Subhiksha India Ltd. It was reported that the deal, which will give the FIIs a 9 per cent stake, is on the verge of being inked.